Fossils first-quarter results beat forecasts

Demand for fashion watches remained strong enough to give Richardson-based Fossil Inc. a better-than-expected first quarter.

Fossil beat analyst forecasts on sales and profit and reported its fourth consecutive quarter of improved results on Tuesday. Its wholesale business posted double-digit sales increases worldwide, and its retail business continued to grow. Profit increased 24 percent, and sales rose 15.7 percent.

“We are probably benefiting from an ongoing situation where there is not as much interest in apparel or it’s kind of an over-served category,” said chairman and CEO Kosta Kartsotis. Even a small percentage of spending moving into watches and fashion accessories “has a big impact.”

Fossil raised its outlook for the full year. “We’ve seen estimates that the watch business will continue to grow at 7 percent to 10 percent,” he said. “We’re in the right place, and we’ll continue to benefit from the tailwind.”

The spring and summer Fossil-branded bands and faces are in trendy citrus colors. “We have fewer stories, but we’re telling them with more authority,” he said.

Its original Fossil brand had a strong quarter, with sales up 17 percent, including a 22 percent increase in the U.S. A year ago, Fossil acquired competitor Skagen Designs, and Fossil, Skagen and Michael Kors jewelry each had strong sales increases.

Fossil’s stock price gained $8.92 a share, or 9 percent, to close at $107.88 on Tuesday.

BlueMatrix analyst Eric Beder said that while he was “impressed” with the strong first-quarter sales, he thinks watch sales are slowing down.

Handbag sales have been difficult for a couple of quarters partly because the selection didn’t have “enough color; the bags were probably too pricey and a little bit too heavy,” Kartsotis said. That’s been corrected, and “we’re seeing stronger performance.”

Fossil is exiting the optical frames business, which was a drag on results.

Most of Fossil’s business is wholesale to department and specialty stores, but its retail business continues to expand. Same-store sales are up 4.3 percent, and it ended the quarter with 477 stores worldwide, up from 398 last year. Fossil reported a first-quarter profit of $72.2 million, or $1.21 a share, compared with a profit of $58.1 million, or 93 cents a share, a year ago.

Sales of $680.9 million compared with $589.5 million in the same period last year.

Analysts surveyed by Thomson Reuters had forecast a profit of 97 cents a share and a sales increase of 10 percent to $651 million.

Fossil said its second-quarter profit will be in the range of 89 cents to 94 cents a share, lower than the $1.05 that analysts forecast. But it raised its full-year profit forecast. Fossil said it expects earnings in the range of $6 to $6.26 a share. The analyst forecast is $6.11 a share.

Sales are forecasted to rise 8 percent to 9 percent in the second quarter and 10 percent to 11 percent for the full year.